Making Tax Digital for Income Tax delayed until 2026

All businesses, self-employed individuals, and landlords with gross income over £50,000 have been given a further two years to prepare for Making Tax Digital for Income Tax Self Assessment (MTD for ITSA). The new regime has been delayed from April 2024 until April 2026.

Those with gross income over £30,000 will not have to join until April 2027.

In the meantime, the government is going to look again at the impact of MTD for ITSA on small businesses, and particularly those with income below £30,000 which may end up never having to join the regime.

What is MTD for ITSA?

The new regime is being introduced to digitalise the way businesses report their financial information to HM Revenue & Customs (HMRC). Digital record keeping and reporting is intended to make tax submissions easier, although it will also allow HMRC to more easily check those submissions.

It is undoubtedly part of a move towards real time reporting and more frequent tax payments by businesses.

MTD for ITSA will require businesses to keep digital records and use compatible software to file quarterly updates of income and expenses with HMRC, in addition to their current annual tax filing requirements.

There is more information on our Making Tax Digital service page and on the government's Making Tax Digital information page.

MTD for VAT is already in place.

Partnerships

Partnerships are more of a problem when it comes to reporting information digitally and in recognition of that the government is delaying MTD for ITSA for general partnerships from the original date of 2025 to a later date to be announced, possibly at the end of the decade.

Companies

MTD for Corporation Tax is unlikely to take place until around 2030, although a voluntary pilot may begin before that.

Reason for the delay?

Although the government says that it recognises businesses are currently experiencing difficult trading and economic conditions and are not ready for MTD for ITSA, in reality it is far more likely that HMRC itself is not geared up for the new regime and the compatible software is far from ready and thus more time is needed.

Before the announcement of the delay, sole traders and landlords with gross income above £10,000 would have joined MTD for ITSA from 6 April 2024, so the new £30,000 threshold is likely to be welcomed by smaller businesses.

It is also a positive development for unincorporated businesses in that the new regime is not being introduced at the same time as the proposed change in the basis periods of assessment due to start from April 2023 with a transitional period. This change will affect businesses most that do not have a 31 March or 5 April year end as they will in future be assessed on a tax year basis, impacting the amount of tax they pay in 2023/24 (with the option of spreading the effects over a five-year period).

The professional tax and accounting bodies have welcomed the delay in MTD for ITSA, as many of their members did not think the original April 2024 implementation date was feasible. Many businesses do not have the right software anyway or have not embarked on any training, both of which will take time and money.

Penalties

Alongside MTD is a new penalty system, harmonising late submission and late payment penalties for Income Tax with those for VAT. This increases the likelihood in future of more penalties being imposed on those reporting under the MTD regime.

HMRC has issued guidance on VAT penalties and interest charges if you submit a VAT Return for an accounting period starting on or after 1 January 2023.

Voluntarily joining Making Tax Digital

Although the date for the compulsory joining of MTD for ITSA has been delayed, it is likely that many taxpayers within the scope of the regime may choose to voluntarily join before being forced to in order to familiarise themselves with the rules in good time.

Further information

If you would like to discuss the implications of Making Tax Digital for your business, please contact a member of our Making Tax Digital team.